Representation Without Taxation

That verbal tinder started the fires of our revolt against British rule more than 200 years ago. Today we are disastrously living with the opposite — representation without taxation.

We ask for something; the politicians promise to provide it. Some of us ask Republicans. Some of us ask Democrats. We never ask for less spending; we always ask for more. We never ask for more taxes; we always ask for less.

Our friends in Washington do their best to give us what we want. If we paid a bit more attention, we would know that they have succeeded beyond our wildest dreams. We have lots more spending than we have taxation.

The best measure of their success is how our elected representatives have promised us basic things like income security and health care when we are old — Social Security and Medicare — without securing the tax revenue to support the promises.

How large is the gap between promised benefits and supporting taxes? Humongous. Here is a summary of the unfunded liabilities for these important programs.

Social Security and Disability. In 2004, according to the trustees report, the unfunded liabilities of this indispensable program were $3.98 trillion. The 2009 report sets the liability at $5.66 trillion. The unfunded liability is the difference between expected employment tax collections and expenditures on retirement benefits and disability income. Some people are frightened for the future of Social Security, but as you will soon see, this liability is dwarfed by the liabilities of Medicare.

Hospital Insurance. Since 2004 the unfunded liabilities of this program have grown from $8.2 trillion to $13.4 trillion, an increase of $5.2 trillion. This increase alone is greater than the increase in publicly held federal debt over the same period.

Medicare Part B. In the last six years the unfunded liabilities of this program have grown from about $11.5 trillion to $17.2 trillion, an increase of $5.7 trillion. I say "about" because the 2004 report grouped the cost of the new prescription drug bill, an estimated $8 trillion then, with the cost of Part B.

Medicare Part D. The prescription drug plan has liabilities that have bounced around since its inception in 2004. The pill program added, in a single stroke, unfunded liabilities that were greater than the unfunded liabilities of the entire retirement and disability income program. Estimated at about $8 trillion then, they clocked in at $7.2 trillion for the 2009 report.

The Whole Ball of Wax. Put it all together and the unfunded liabilities of elderly security — the difference between what is promised and what tax collections will pay for — has grown from $31.68 trillion to $43.46 trillion. That's an increase of nearly $12 trillion in five years. Note that these figures are massively larger than what the politicians talk about, including the record estimated deficit for this year, $1.8 trillion.

The Elephant in the Room. Unfunded Medicare liabilities alone have grown from $27.7 trillion to $37.8 trillion since 2004. That's an increase of $10.1 trillion in just five years. That's more than twice the $4.2 trillion increase in publicly held federal debt over the same period.

The bottom line here is that health care reform is coming our way, and soon. But the reform won't be an expansion of health care. It will be a reduction.

Should we worry about this?

Maybe not. We have the most expensive health care in the world, but few claim it is the best. One indication: We rank 50th in the world for life expectancy and 24th in the world for disability-adjusted life expectancy.

That's what representation without taxation produces.

the Trillions in Tax We Don’t have

This table shows the growth in unfunded liabilities of four major government programs: Old Age Security and Disability Income, Medicare hospital insurance, Part B and Part D. It also shows, for comparison, publicly held federal debt and the net worth of all households and non-profit institutions in America. All numbers are in trillions of dollars.

This article contains the opinions of the author but not necessarily the opinions of AssetBuilder Inc. The opinion of the author is subject to change without notice. All materials presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This article is distributed for educational puposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.

Performance data shown represents past performance. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.

AssetBuilder Inc. is an investment advisor registered with the Securities and Exchange Commission. Consider the investment objectives, risks, and expenses carefully before investing.